Mallya default case : Diageo says DRT has no power to attach $40 million

Bengaluru: Diageo plc on Thursday challenged Debt Recovery Tribunal's power to direct it to deposit USD 40 million, a part of USD 75 million payout package signed with liquor baron Vijay Mallya who is facing a multi-agency probe including for alleged money laundering.

Liquor baron Vijay Mallya. Agencies

The company contended before the tribunal that the amount was paid outside India.

"The amount of USD 40 million, which is a part of USD 75 million payout package between Mallya and us, was paid outside India and hence the DRT does not have power to direct us to attach the money before the tribunal. Such a deal does not fall in the jurisdiction of DRT," Diageo argued.

As soon as the proceedings began at the tribunal here, Diageo Counsel submitted the copy of the objections filed against SBI-led Bankers' memo, seeking depositing of USD 40 million before the DRT.

The consortium led by State Bank of India had filed a memo putting a claim on the payout of USD 40 million to Mallya by Diageo as part of the sweetheart deal.

According to the deal, Diageo agreed to pay Mallya USD 75 million in five instalments in lieu of the liquor baron stepping down from the post of Chairman of United Spirits.

An amount of USD 40 million was paid immediately after Mallya quit from chairman's post.

Making submissions before DRT Presiding Officer C R Benakanahalli, Diageo's counsel prayed that the tribunal should reject the bankers' memo for its inconsistent claims on relief.

Diageo also argued that USD 40 million was paid to Mallya on February 25, much before DRT's March 7 order, and hence the attempt of the bankers to recreate liability is questionable and untenable.

DRT, in its March 7 order had barred Mallya from withdrawing USD 75 million exit payment from Diageo till the disposal of the case over the loan default by his Kingfisher Airlines.

It also had restrained Diageo and United Spirits Ltd, owned by the UK-based firm, from temporarily disbursing the amount to Mallya, who worked out the deal under a severance package.

Diageo also argued that the remaining USD 35 million to be paid to Mallya was subject to certain conditions, which means it is not a guarantee that it would be transferred to him and hence there does not arise any question of attaching the money before the tribunal.

Diageo also contended that DRT will not have any jurisdiction over the transfer of remaining USD 35 million to Mallya because the amount will be paid outside India.

The bankers, on the other hand, sought time to consult on the interim order passed by the Bombay High Court, asking the Service Tax Department to attach the sale of proceedings of Mallya's private aircraft parked at Mumbai airport.

They had on April 13 filed an application, seeking attachment of the sale proceedings of Mallya's private aircraft by the Service Tax Department, which is going to auction it on May 12 and 13 to recover their dues estimated to be nearly Rs 535 crore.

Last month, the department had claimed in a petition to the Bombay High Court that Mallya's total disputed liability in respect of service tax was to the tune of Rs 535 crore.

It was also claimed that Mallya had collected a large sum of money as service tax from flyers of the now-grounded Kingfisher Airlines on behalf of the government, but the same was not deposited in the government treasury.

Mallya, whose now-defunct group company Kingfisher Airlines owes over Rs 9,000 crore to 17 banks, had left the country on March 2 and is believed to be in the UK.